NEW YORK — In a jolt certain to be felt in food pantries across the globe, H.J. Heinz and Kraft Foods Group (KRFT) will merge into a single food behemoth -- forming the world's fifth largest food and beverage company -- bent on cutting costs, growing internationally and evolving into a more consumer-focused company.
The news propelled Kraft shares nearly 34% -- up nearly $21 -- in mid-day trading.
The massive merger, initially valued at around $36 billion, will allow Kraft "to move and grow faster than we could on our own," said Kraft CEO John Cahill, in conference call. He would become vice-chair of the newly-formed Kraft Heniz Co.
The firms said the deal was unanimously approved by the boards of directors of both companies. The new firm will be co-headquartered in Pittsburgh and in the Chicago area, with no plans to close either operation.
At issue: How the combination of two iconic but aging mega-brands solves the overriding issue both companies face of evolving consumer tastes that tend to favor fresh, natural and local over packaged, processed and trucked-in from far away.
"These two companies are old school," says Lou Biscotti, global practice leader for WeiserMazars. "Both are stodgy, old brands that haven't kept up with the times in terms of shifting consumer appetites."
The new company will have revenue of approximately $28 billion and will hold a portfolio of brands including Heinz, Kraft, Oscar Mayer, Ore-Ida and Philadelphia. The total deal could be valued at around $36 billion.